Money matters: One in three Canadian small business owners unable to pay themselves in the last year

Toronto – September 12, 2023 – A new survey from Xero, the global small business platform, has revealed that over half (53%) of small businesses in Canada cited inflation as impacting their cash flow management in the last six months. Some businesses have been so heavily impacted that nearly one-third (31%) of Canadian small business owners have been unable to pay themselves at times in the last 12 months.

The Money matters: Navigating the impact of economic conditions on the cash flow of Canadian small businesses report surveyed over 1,000 small to medium-sized businesses across Canada about the current state of payments and how economic factors in the country were impacting their cash flow management, future outlook, and mental and physical health. It revealed that a majority (54%) of small businesses have increased their prices in the last 12 months to mitigate cash flow challenges.

“The Money matters report reinforces the importance of effective cash flow management for Canadian small businesses and their owners. With many small businesses facing the challenges of inflation head on, having access to tools that can help simplify the cash flow process is essential to weathering difficult economic times and sustaining growth,” said Faye Pang, Canada Country Manager at Xero.

The impact of cash flow challenges

The report showed that managing cash flow is a priority for a majority (88%) of Canadian small businesses. Surprisingly, small businesses showed no difference in how they prioritized cash flow management, regardless of whether they faced cash flow challenges in the past 12 months or not. However, if small businesses noticed inflationary pressures in the past six months, cash flow management became a bigger priority, indicating that the anticipation of inflationary pressure is more impactful than the cash flow challenges they cause.

The survey also revealed that cash flow issues have had significantly negative effects on small business owners’ emotional and physical health, including feeling of stress (54%), anxiety (43%), having trouble sleeping (35%) and losing time with friends or family (27%).

Despite the evident challenges that Canadian small businesses are facing, they remain optimistic, with 78 percent of Canadian small businesses reporting some level of confidence in their financial wellbeing. More than two in five (43%) Canadian small business owners describe themselves as reasonably upbeat and reassured, and more importantly, a third (35%) say they are super confident in their financial well-being.

Cash flow management practices, solutions, and resources

The findings from the report also showed that the time spent on cash flow monitoring varies for businesses of different sizes, with two in five (42%) sole traders only spending less than one hour a week, and another third (33%) spending between one to two hours per week. This contrasts with larger businesses, who are more likely to commit three or more hours to this task (56%).

When it comes to preferred payment formats, cash and credit cards remain the key method of collecting payment with 61 per cent of Canadian small businesses saying they use each. One in three (35%) small businesses are using newer digital and online payment formats, however business owners over the age of 55 are more likely to say they prefer traditional methods over digital formats.

Canadian small businesses are using a variety of methods to help manage cash flow. Almost one third (31%) of businesses use accounting software as their primary approach, with employing businesses being almost twice as likely to use software in comparison to sole traders. The figure, when considered alongside the survey’s findings around cash flow priorities and challenges, highlights a need for more effective cash flow management tools, which many small businesses have yet to adopt.

“We know 69 per cent of small businesses are not using accounting software tools as their primary approach to cash flow management, highlighting opportunities to integrate online tools with features like digital payments and invoicing, payment reminders, as well as tools leveraging AI like Xero Analytics Plus, which offers cash flow forecasting. Additionally, customers who accept digital payments on Xero online invoices get paid up to twice as fast as those who don’t use online invoice payments.” said Pang.

“We want our customers to feel confident in their ability to manage their cash flow, knowing they have the backing of trusted resources, tools, and software which are designed to help them efficiently track their finances. As Canadian small business owners continue to navigate a dynamic economic landscape, our accounting software suite offers integrated solutions to manage their cash flow and grow their business.”

For more information on the Money matters report, visit here.

ENDS

Media Contact

Xero Canada | Kelly Kerr | capress@xero.com

About Xero

Xero is a global small business platform with 3.7 million subscribers which includes a core accounting solution, payroll, workforce management, expenses and projects. Xero also has an extensive ecosystem of connected apps and connections to banks and other financial institutions helping small businesses access a range of solutions from within Xero’s open platform to help them run their business and manage their finances. For four consecutive years (2020-2023) Xero was included in the Bloomberg Gender-Equality Index. In 2021 and 2022, Xero was included in the Dow Jones Sustainability Index (DJSI), powered by the S&P Global Corporate Sustainability Assessment. Xero is a FIFA Women’s Football partner.

About the research methodology

This report is based on the collated responses from an online survey conducted in English only, with 1033 small to medium sized businesses (with up to 50 employees) across Canada, recruited from one online market panel. Responses were collected by Insights Exchange between June 29 - July 7 2023.